GBP/USD extends losses to near 1.2610 as Fed rate cut in March appears unlikely

• GBP/USD lost ground as US Dollar surged after blockbuster US jobs data.
• US Nonfarm Payrolls added 353K jobs in January against the expected 180K.
• Fed Chair Jerome Powell reiterated that the March meeting is too soon to start rate cuts.
• BoE’s Huw Pill mentioned that the right time for the rate cuts is probably still some time away.

GBP/USD continues its decline for the second consecutive session, edging lower to around 1.2610 during the Asian trading hours on Monday. The Pound Sterling (GBP) faces challenges as the US Dollar (USD), measured by the US Dollar Index (DXY), reaches an eight-week high. This strength in the USD is fueled by positive market sentiment as a March rate cut by the Federal Reserve appears unlikely. The sentiment is based on a promising labor market report released on Friday.

On Friday, the US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls added 353,000 jobs in January, surpassing the previous reading of 333,000 and exceeding the market consensus of 180,000. Additionally, Average Hourly Earnings (YoY) rose by 4.5%, surpassing the expected 4.1% and the previous 4.4% rise. Traders will continue to monitor economic indicators, such as the ISM Services Employment Index, scheduled for release on Monday, for further insights into the state of the US labor market and potential implications for monetary policy.

US Federal Reserve (Fed) Chair Jerome Powell reiterated that the March meeting is likely too soon to have confidence in starting rate cuts. He emphasized that with the economy strong, the Fed intends to approach the timing of rate cuts carefully. Powell mentioned that confidence is increasing, but the Fed wants more assurance before taking the “crucial step” of initiating rate cuts.

On the other hand, the Governor of the Bank of England (BoE), Andrew Bailey, avoided speculation on rate cuts and warned that price pressures could pick up again in the second half of this year. The BoE appears to be prioritizing the management of high inflationary pressures over potentially addressing deepening recession fears.

Furthermore, the Chief Economist of the Bank of England (BoE), Huw Pill, mentioned that the right time for the BoE to cut interest rates is probably still some time away. This perspective is based on uncertainty about the persistence of longer-term inflationary pressures. Pill emphasized the need for sufficient evidence before considering a reduction in the policy rate.